Experts Say When Student Loan Payments Resume, Default Rates Will Explode!
We know for certain that there is NO mention of student loan forgiveness in Biden’s proposed 2022 budget. The Hill and several other media outlets have reported that the Biden administration has told loan servicers not to send out notices about payments in March 2022. This latest delay is only three months, which could easily be interpreted as the administration has no solid plan for restarting payments and needs to finalize a plan to restart August 31, 2022.
The Trump administration paused student loan payments in March 2020. That pause has been extended six times and is set to end on August 31, 2022. With the two-year pause ending, researchers at the Federal Reserve Bank of New York released a report in March 2022 predicting that borrowers are likely to struggle financially once forbearance ends, resulting in “a meaningful rise in delinquencies, both for student loans and other debt.“ Other research suggests as many as 7.8-million borrowers — nearly three in 10 — are at “high risk” of missing payments once the federal government lifts its repayment moratorium.
Mary Lyn Hammer, Champion Col•EDGE Solutions CEO, said, “I believe the estimates for missing payments are too low. Since the beginning of the pause, I have predicted that we will see an explosion of defaults and delinquencies that will devastate American families.”
The difficulties in restarting a system with $1.75 trillion in debt that has been dormant for over two years are difficult to anticipate. As of April 2022:
- Borrowers can’t budget because they have no guidance on how much payments will be and when they are due.
- Borrowers do not know if they will have the same repayment plan or need to make changes.
- Borrowers have no guidance has been given on how delinquent or default statuses will be treated or if accounts will still have those loan statuses once payments resume.
Michele Clymer, Champion Col•EDGE Solutions Student Success Manager, said, “Our phones are busier than ever. Everyone is confused and worried. It is sad to know that many borrowers are contacting us and they can’t make financial decisions beyond the end of April because they do not know what their budget will be.”
The point is that no plan has been published for restarting payments and in Biden’s proposed 2022 budget, ZERO funds are allocated to student loan forgiveness. Sadly, despite no formal announcement, the chances of broad cancelation of student loan debt are dismal when the facts are reviewed.
“The White House only requested more funding — $2.7 billion — to improve customer service for borrowers.” CNBC.
Meanwhile, the borrowers who owe $1.75 trillion in student loans have been left in limbo, not knowing what to do with their budget next month. In our inflation-burdened economy, adding in a payment of hundreds of dollars a month is not a realistic expense.
Managing the uncertainty about student loan repayment is a necessary task that cannot wait until loan repayment resumes. Champion has continued to counsel borrowers during the COVID pause, and we review these five points will help them stay on track and prepare.
- Don’t count on loan forgiveness. It’s all over the news…will the government offer some student loan forgiveness? Since it is not in the proposed 2022 budget, we tell borrowers the best plan is to plan to repay their debt.
- Beware of scams. Student loan debt relief scammers are abundant! We give borrowers this article to read to learn how to spot and avoid scams.
- Understand that changes have happened. Loan servicers have changed, and many people have moved. We help borrowers find their servicer and make sure servicers have the borrowers’ correct address, phone number, and email.
- Do a payment plan review. We check the borrower’s payment plan and help them make changes if their pre-covid payment plan is no longer affordable.
- Make payments now. Yes, even during the COVID pause, making payments is wise because it reduces loan principal. We offer this article so our borrowers can learn more.
Successful schools are preparing their post-COVID default prevention strategy now. If schools wait until delinquencies get out of hand, it may be too late to avoid sanctions or other severe penalties. Because many default management companies ceased operating during the pandemic, you may not be able to find a default prevention provider that can handle your school in time to thwart sanctions or penalties.